Tag Archives: fair debt collection practices act

The Effective (and Ineffective) Use of Demand Letters

     Many lawyers and their clients love demand letters. The reason for this is simple: it is a potential cost saver. If the lawyer can clear up with a demand letter, what could otherwise be accomplished only through a time-consuming and expensive lawsuit, the client has won a tremendous battle. Litigation is often decided based upon costs. Thus, if counsel can save his client substantial  sums, by resolving a case with a demand letter only, the client has won. However, demand letters are subject to certain pitfalls which counsel should be careful not to fall into.

  1. When to Send  A Demand Letter

     I confess that I do not like it when clients approach me to “just sent a demand letter”.  As lawyers, we greatly prefer clients who are prepared to follow through on their threats. We do not want to be enlisted by a bluffer. After all, a client who only wants his lawyer to send a demand letter is basically asking to exploit the lawyers’ letterhead for a discount or no fee at all hoping that his adversary will fold at the mere sight of the lawyer’s name. Moreover, if all I do is send a demand letter which is not followed by an actual lawsuit it will likely diminish my reputation as a litigator and label me with the opposing side as a bluffer. This a reputation that I do not have and that I do not want.  

      2. What to Say in the Demand Letter

     The demand letter should identify your client, the basis for his or her claim and state the amount of money requested. For consumer cases, a disclaimer as required by the Fair Debt Collection Practices Act should also be included. The demand letter should contain a time reference within which the opposing party has to comply. Demand letters with open ended response times have no effect and will often be ignored.

     Additionally, you may want to consider ignoring such catchphrases as “Please Govern Yourself Accordingly.” What does that mean anyway? Wouldn’t it be better to simply use English and say – – “if you do not respond, you will be sued.” I like that better; it is more direct and there is no doubt as to what the consequences will be if the opposing party fails to respond.

     3, What Not to Say in the Demand Letter.

     In a recent case from California,  a lawyer who sent a demand letter was later sued by the opposing party because of the statements made in the letter. In the demand letter in question, the lawyer threatened to expose  certain sexual liaisons of the opposing party unless the lawsuit,  which had not yet been filed, was “resolved to his client’s satisfaction.” The demand letter was also followed by several efforts to hack the opposing party’s e-mail and eavesdrop on their telephone conversations. The California Superior Court thought this was just too much and denied the motion to dismiss filed by defense counsel for the lawyer. The matter is now on appeal and has been widely discussed in the legal press. See generally http://www.abajournal.com/news/article/was_well-known_lawyers_demand_letter_extortion_appeals_court_to_hear_argume/?utm_source=feedburner&utm_medium=feed&utm_campaign=ABA+Journal+Top+Stories&utm_content=Google+Reader.

      What is the lesson to be learned from this case? The first lesson is to be careful what you say. If you want something for your client, and most of the time in the commercial context it is money, be specific. Show in your demand letter that your client is entitled to the money by attaching a copy of the contract or invoice. Do not say things such as “unless this matter is resolved to my client’s satisfaction”. What exactly does that mean? This is likely one of the things that the California court found troubling (not to mention the computer hacking and eavesdropping).

     The California case provides an excellent example of a lawyer going “over the top” in order to accomplish the ends of his or her client. Lawyers should be careful not to over-promise their clients a particular result. Let’s face it, if we really wanted to help assure the client’s objective to collect money, rather than filing a lawsuit, we could simply send Luca Brasi[1]  to the opposing party’s place of business and cut off the heads of one of their horses. My guess is that the Bar would probably not appreciate this. This is not our profession. Our profession requires us to act zealously within the bounds of the law. Toward that end, it is the careful lawyer who tells his client what his limitations are and that if he wishes to obtain another type of justice, another type or professional might be required.

For a portion of the briefing on the California case, see http://www.scribd.com/doc/141257870/Respondent-Brief.



[1] For more information on this character in the Godfather, see http://en.wikipedia.org/wiki/Luca_Brasi


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     Does anybody owe you money?   I thought that might get your attention.  Both law firms and the clients we represent are living in an age in which collecting money has become unreasonably difficult.   This article provides some suggestions as to how best to approach collections from both a practical and legal standpoint.

1.            Make Sure you Have a Signed Contract With Your Customer.

     Whatever type of business you are in, whether you are an attorney or you sell widgets, it is always best to have a written contract with your client or customer.  The contract should spell out in detail the nature of your services and how you will be compensated.   The contract should provide a deadline for the client and/or customer to object to the invoices rendered and, if no objection is made, the objection is considered waived.   The contract should also contain a provision for attorneys’ fees in the event the filing of a lawsuit is necessary together with jurisdiction and venue provisions.  The execution of a written contract is the first step in ensuring that you will be paid. Contact your lawyer to prepare the contract; don’t pull one off the internet and do it yourself !

      2.         Get a Personal Guaranty.

     Personal guarantees  are often overlooked, particularly at the commencement of a business relationship.   Let’s face it, do you really know whether a prospective client’s corporation is solvent ?  Do you really know whether the company has a track record of profits or losses and whether the company owes money to creditors ?   Most often, you do not, particularly with small businesses for whom public information may not be readily available.   Thus, it is often a good idea to politely request a personal guaranty.   This will make your life easier later on when you have to sue the company, which is then out of business, and your only hope to be paid is to collect from the company’s principal.  Cases in which a personal guaranty has been executed are completely different than those where there are no such guarantees. The likelihood of settling a case in which you obtained a personal guaranty is far greater because of the risk of personal liability that the principal of the corporation will have.

     3.         Send  a Demand Letter

     No one likes to be sued.   Even worse, no one likes to be sued out of the blue.   Accordingly, it is often a good idea to send a demand letter to the prospective defendant first.   The demand letter should contain the required statement by the Fair Debt Collection Practices Act which should include the following: 

 (1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the collector;

(4) a statement that if the consumer notifies the collector in writing within the thirty-day period that the debt or any portion is disputed the collector will obtain verification of the debt or a copy of such verification of the debt or a copy of such verification or judgment and the same will be mailed to the consumer by the debt collector, and

(5) a statement that upon the consumer’s written request within the thirty-day period, the collector will provide the consumer with the original creditor’s name and address.


15 U.S.C.A. §1692g(a)(1-5).

      In the event that you do not receive a response, call your lawyer. See paragraph 5 below. Do not send demand letters threatening suit if you do not intend to follow through. You do not want to acquire the reputation of a bluffer.

     4.         Monitor Accounts Receivable and Work In Process.

     In the world in which we are living, it is likely that the debtor you are thinking of suing is being pursued by other creditors.   It is also likely that the debtor has a limited amount of assets.   Thus, it is in your best interest to be aggressive in collecting money that is owed.   How do you that ? Here are some suggestions.

     Monitor your accounts receivable. This means looking at the amounts you are owed on a regular basis, usually every week or so. It is not a good idea to wait until several months go by before you realize that someone, or some company, owes you a lot of money.

     Also, be aware of goods in transit and work in process. These are the two accounting categories which reflect what you, or your company, are currently working on. Generally, it is not a good idea to continue to ship goods or to provide services to someone who is not paying. If you do, you are only making matters worse as you get further and further behind.  Moreover, it is often interesting  to see a company’s reaction when the promised goods are not delivered or the services are not performed ? Very often the check will arrive in the mail because the customer needs the product or the service. This is often a good time to collect money.

     5. Call the Lawyer

     When all else fails, call the lawyer. Hopefully, you have taken the advice in this column and made your customer sign a contract and you have obtained a personal guaranty. This will make the lawyer’s job far easier if you are required to file a lawsuit.

     There are many people in the world who purchase goods and services knowing in advance that they will not pay for them. It is often hard to spot these people in advance; nonetheless, rest assured, they are out there. Try not to let them get away with it. Moreover, there are also people who have genuinely fallen on hard times and require more time to pay and honestly tell you that. These are people who you should work with towards obtaining an amicable resolution. Generally, people in the latter category are worth continuing to do business with while people in the former category are not. The trick is to be able to tell, to extent possible in advance, who is who. 

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